SYNOPSIS: Want to know what is the hottest new profit center
for big blue-chip corporations like ITT, General Motors, American Express,
and others? The acceptable term is "fringe banking;" the less
acceptable, but more accurate, term is "loan sharking."

Fringe banks are pawn shops and check cashing outlets-operations that
serve low-income people, usually in urban ghettos, who don't fit into
the picture at mainstream banks. Interest on pawn shop loans typically
runs over 200 percent, and check cashers charge two to 10 percent of
a check's value for cashing it. These are just two examples of the ways
some large U.S. corporations are profiting from the cycle of poverty,
particularly in the South.

The Fall 1993 cover article of Southern Exposure magazine documents
how huge national and international corporations own and finance a growing
"poverty industry" that targets low-income, blue-collar, and
minority consumers for fraud, exploitation, and price gouging.

In addition to "fringe banks," other money-making endeavors
include:

* Second-mortgage companies making loans with 30 percent interest
to pay off bills or make repairs

* Used-car dealers-working in tandem with banks and finance companies
to bilk people with "bad credit"

* Finance companies (ITT is a standout here) -- charging huge interest
rates by acting as a lender of last resort for borrowers with limited
incomes

* Rent-to-own stores -- which constitute a $3.7-billion-a-year business,
charging customers about five times what they'd pay at traditional
retailers

* Trade schools -- lending out federal loan money on the promise
of giving usable skills to low-income students, then leaving them
with no skills and a big debt

* Debt collectors -- the not-so-friendly people who badger, threaten,
and coerce low-income borrowers to pay back funds regardless of their
circumstances

It is a normal practice for companies engaged in these activities to
entice low-income people into deeper and deeper debt, at interest rates
many times higher than those paid by middle-class Americans. A typical
example: a 66-year-old Atlanta man pawned his car for $300. He agreed
to pay back $545 over twelve weeks, but fell behind in his payments.
The pawn broker tacked on late charges and threatened to have the man
arrested. When the borrower went to Legal Aid for help, the attorney
discovered that the loan contract listed the annual interest rate as
24 percent; the real rate was 550 percent.

Unlike banks and S&Ls, huge financial service businesses -- part
of such mega-corporations as American Express, Sears, General Electric,
General Motors, and Westinghouse -- are not subject to federal regulations
that require financial disclosures, limit wheeling-and-dealing, combat
racial discrimination in lending, and put caps on interest rates. Ironically,
banks are crying foul, while simultaneously extending huge lines of
credit to the very companies they're accusing of undermining them.

SSU Censored Researcher: Jesse Boggs

COMMENTS: This is an extraordinary untold story of how some
of America's biggest corporations are making billions of dollars by
targeting the poor for profit. In the introduction to the special 28-page
section on "Poverty, Inc." published in Southern Exposure,
Mike Hudson, a reporter with the Roanoke Times & World-News, and
Eric Bates, editor of Southern Exposure, describe this feature as an
explanation of how the poverty industry really works-and how average
citizens are fighting back. Support for the extensive investigative
project was provided by the Alicia Patterson Foundation, the Fund for
Investigative Journalism, and the Dick Goldensohn Fund. Mike Hudson,
who spent two years investigating the poverty industry, provides the
background on this story.

"The nation's news media have largely ignored the story and its
ramifications. To our knowledge, no major news outlet-or small one for
that matter-has identified the broad scope of corporate America's role
in profiteering from the poor via credit fraud and usury. No one has
called the 'poverty industry' what it is -- a huge, multi-billion-dollar
collection of companies fueled by Wall Street funding and propped up
by a new veneer of corporate respectability. Nor have the media reported
in a comprehensive way on how these businesses are using their polish
and resources to engineer legislative 'deregulation' in nearly every
state -- gutting laws that had once given low-income and minority consumers
a measure of protection from predatory lending.

"There have been a few notable exceptions to this rule of media
inattention. These including reporting by the Boston Globe and the Atlanta
newspapers on second mortgage fraud against minority homeowners, Mary
Kane's excellent coverage of inner-city economics for Newhouse News
Service, and a Wall Street journal story by Alix Freedman on how the
nation's largest rent-to-own chain takes advantage of the poor.

"But, once again, these stories are the exceptions. The major
media have missed the big picture either by ignoring the story altogether,
or by limiting their critical scrutiny to narrow segments of the poverty
industry (or specific companies such as Fleet Finance) and failing to
make connections between the various businesses that market to the poor.

"And, to make matters worse, national business magazines and major
daily newspapers have quite frequently produced stories that read like
press releases from these businesses.

"A typical example: a business page article in one major Midwest
newspaper ('Pssst! Hocking your VCR has gotten respectable'), which
trumpeted the arrival of a national pawn chain but failed to point out
that a loan at a `respectable' pawn broker in the state could carry
an annual interest rate of 276 percent.

"The general public would benefit in a number of ways from greater
exposure to this subject. Such exposure would:

* alert the public to a silent but devastating crisis that is pushing
people deeper into poverty and destabilizing neighborhoods.

* warn individual consumers so that they could protect themselves
from being preyed upon and seek redress for past exploitation.

* provide citizens and activists the information they need to fight
for tougher legislation and law enforcement efforts aimed at reining
in these practices.

* offer investors and stockholders in these companies a clearer picture
of how their money is being used, and who is being hurt by their investments.

* give citizens a fuller understanding of the nature of poverty and
economics in disadvantaged neighborhoods, thus fueling the debate
about welfare, inner-city blight and related issues.

"The primary beneficiaries of limited coverage are the corporations
that profit from these practices, along with their stockholders and
investors. The less scrutiny they receive, the more effective they can
be in attracting investment capital and in cultivating positive images
with legislators and consumers. The profits they make from these ventures,
as our stories show, are huge.

"Others who benefit include legislators who receive campaign contributions
from these companies (and in the case of many lawyer/legislators, lucrative
private legal work). Likewise, corporate news media benefit from the
advertising that these businesses buy from them.

"When the [Southern Exposure] issue came out, we sent out press
releases to a number of other publications, but have received limited
response. The Associated Press wrote a story on our study, but distribution
of the article was limited to North Carolina and was picked up only
by a few papers.

"We are trying to get the article reprinted in other alternative
publications and are encouraging other journalists to pursue the story.
In addition, the publisher of Southern Exposure, the Institute for Southern
Studies, is in the process of creating a quarterly newsletter, Poverty,
Inc., which will continue to track these issues and serve as a networking
vehicle for journalists, activists, attorneys, and others concerned
about the subject.

Meanwhile, on December 16, it was announced that the State Attorney
General of Georgia and Fleet Finance have agreed on a settlement of
the state's criminal investigation for a sum of $115 million (the equivalent
of about two year's profits for Fleet Finance in the early 1990s.)